In a recent crypto regulation development, Hong Kong’s Securities and Futures Commission (SFC) has announced a circular outlining the transitional arrangements for the new licensing regime for virtual asset trading platforms (VATPs).
This move comes as part of the city’s efforts to enhance regulations surrounding virtual asset exchanges and combat money laundering and terrorist financing.
Under the new regime, which will be effective from June 1, 2023, all VATPs operating a virtual asset exchange service in Hong Kong or actively marketing their services to Hong Kong investors will be required to obtain a license from the SFC.
However, the transitional arrangements apply only to VATPs providing trading services in non-security tokens, and compliance with the Securities and Futures Ordinance (SFO) is not covered under these arrangements.
VATPs intending to offer trading services in security tokens must obtain the relevant license under the SFO. Pre-existing VATPs with a significant presence in Hong Kong prior to June 1, 2023, will be allowed to continue providing virtual asset services until May 31, 2024, without breaching licensing requirements.
To assess a VATP’s genuine business presence, factors such as incorporation in Hong Kong, physical office presence, key personnel location, and trading volume in Hong Kong will be considered.
Business Continuity: Dual Licensing for Crypto VATPs under SFO & AML/CFT Regimes
Individuals performing regulated functions for pre-existing VATPs will also be permitted to continue until May 31, 2024, without breaching licensing requirements.
However, VATPs that were not operating in Hong Kong before June 1, 2023, are not eligible for the transitional arrangements and must refrain from engaging in any business activities or marketing to Hong Kong investors until they obtain an SFC license.
It is important to note that engaging in unlicensed activities is a criminal offense for both VATPs and individuals involved in regulated functions.
The SFC has introduced a deeming arrangement, allowing pre-existing VATPs to be qualified and deemed as licensed under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) from June 1, 2024.
To qualify for this arrangement, pre-existing VATPs must meet certain conditions, including submitting a completed online license application to the SFC within the first nine months from June 1, 2023. If a VATP fails to meet the deeming conditions, it may be required to cease operations by May 31, 2024.
The SFC will closely monitor compliance with the licensing regime, and any non-compliance may result in appropriate actions being taken.
Pre-existing VATPs seeking to qualify for the deeming arrangement should carefully adhere to the guidelines provided by the SFC, ensuring timely submission of complete license applications and meeting all necessary requirements.
However, by doing so, VATPs can increase their chances of continuing their operations in Hong Kong and complying with the crypto regulatory framework.
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